Soapy Sid vs. the Fifth Amendment

Chrysler aka the Federal Government aka President Obama aka Soapy Sid is asking the bankruptcy court to extinguish its mortgages. (And who can blame Chrysler? I’d like my mortgage to be extinguished too. Shoot, go ahead and extinguish my conscience while you’re at it, your Honor. I’d rest easier without either of them.) But every ointment has a fly and in this case the owners of the mortgages are, rather meanly, objecting.

One of their claims is that taking their mortgages away from them violates the 5th Amendment of the Constitution, which prohibits taking property without just compensation. (This is called “the Takings Clause.”) Now, these creditors’ belief that a few words in a 200-year old document should stand in the way of Progress and the UAW is naive and silly. But if you take that extremely naive and silly assumption at face value–I know, I know, bear with me–they actually have a point. Even given what modern courts have done with takings law, I think what the government is doing here is probably a taking.

The Takings claim is pretty interesting. The mortage holders claim that their mortgages cannot be extinguished under the Bankruptcy Code (one of the most beautiful pieces of law you’ll ever see, by the way) and that the government is claiming that TARP gives it the authority to go beyond the bankruptcy code. Now, I’m no expert on the bankruptcy code and how it intersects with the Takings Clause, but if the mortgage holders are right about this, then my quick and dirty analysis is that they’re also right that what the government wants to do is a taking.

Here’s why. Our courts now recognize two types of takings. “Actual” takings are when the government actually confiscates your property. It doesn’t matter whether actual takings are partial or not. Example: if the government takes a tiny strip of your land for a road, they have to pay you for it.

To my mind, if TARP allows or requires the bankruptcy courts to extinguish the senior lenders’ mortgage, then this is an actual taking, since a mortgage is usually understood as a kind of property interest.

The other kind of takings claim is a “regulatory” taking. This is when the government technically leaves you as the owner of your property but regulates how you can use it. Example: you own some wetlands but you can’t fill in the wetlands or build anything there for environmental reasons under the Clean Water Act. Its only in “regulatory” takings that you get any issues about whether the taking is partial or not. Example: you own a wetland, and the government will let you build on it, but only if your building is on stilts. The courts might decide that this is not a taking because you can still use your property for something, even if you can’t use it exactly the way you want. But even if this mortgage extinction thing were only a regulatory taking, which I don’t think it is, its just not partial.. The government is not asking the court to partially extinguish the senior creditors’ liens (I’m not even sure there’s any legal mechanism to do that). The goverment is asking the court to *entirely* extinguish the creditors’ liens. Nothing partial about that.

Now maybe the government will say that the partial compensation the creditors will recieve means that the taking is only partial. I wouldn’t put anything past a court, but I would still be surprised if a competent, non-ideological judge gave that argument the time of day. Takings and compensation for takings are two separate things. Partial compensation is partial compensation, not partial takings. Just like the government can’t get away with taking your land but giving you only half value for it.

If I were the mortgage holders, my main concern (besides the fact that I was standing in way of Progress and the Glorious New Dawn in service of some laughable and probably racist notions about law and property rights) would be winning the battle and losing the war. In other words, I would be concerned that even if I ultimately was able to persuade a court that I was the victim of a takings, the court might then decide that my mortgage wasn’t worth very much and only give me as compensation the kinds of meager sums that I have already rejected as inadequate.

I can see two ways around this main concern. First, as long as groups like the UAW are getting a sweetheart financial deal, which the mortgage holders seem to think they are, it will be hard for the government to demonstrate that the mortgages were really that valueless. Second, I understand that there’s some doubt that the TARP actually authorizes the government to extinguish these mortgages. If so, under the Canon of Constitutional Doubt, if extinguishing the mortgages would be a taking, the court should not interprete the TARP to allow for the extinction of mortgages.